Naval shipyards. Pipe dreams aboard

The French want to consolidate Europe's naval yards

TWO weeks ago, Wolfgang Clement, Germany's economics minister, was so irritated by his French counterpart Nicolas Sarkozy's pronouncements on plans to create the naval equivalent of the European Aeronautic Defence and Space Company (EADS) that he cancelled a meeting planned for October 14th at the very last minute. But, during several get-togethers this week, including a run in a Berlin park, Mr Clement and Mr Sarkozy made amends. Germany is now officially endorsing the idea of the creation of a European naval champion. Making it happen, however, will be no jog in the park.

Even fierce critics of Mr Sarkozy's interventionism admit that Europe's naval shipyards need to consolidate to bring down defence-procurement costs. Over-capacity and falling government orders plague the industry, which also faces competition for non-European orders from more efficient American and Asian yards. America, for instance, has only two big naval shipbuilders with six yards, while fragmented Europe has no fewer than 21 firms with 23 yards. So there is plenty of potential for consolidation.

Yet obstacles to the forming of a big European naval company are huge. France, Spain and Italy first need to merge shipyards at home. Defence is the most political of industries, and trade unions will resist the inevitable job cuts that will come with even national consolidation.

Germany is one step ahead of its neighbours in consolidating the industry. ThyssenKrupp, a big steel company, recently took over Howaldtswerke-Deutsche Werft (HDW), Germany's biggest shipyard, which had passed into the hands of an American private-equity firm. The new group, ThyssenKrupp Marine Systems, employing some 9,200 people, should get approval from German and EU antitrust authorities in the next few weeks.

Consolidation of France's defence shipbuilding took a step forward on October 25th when Michele Alliot-Marie, the French defence minister, announced plans at a naval trade show near Paris to privatise as much as 49% of DCN, the state's yard. This will make it easier for DCN to merge with the naval business of Thales, a privatised defence-electronics group. Thales has been dragging its heels, despite prodding from the government, which still holds a 30% stake in it. But now that DCN has been knocked into shape, with its bloated 28,000 labour force cut to 12,000, Thales boss Denis Ranque can see some advantages in having a shipyard business as part of his company's defence portfolio.

If DCN and Thales Naval were to merge next year, they could then start talking to ThyssenKrupp Marine Systems. Satisfying German and French national sensibilities, though, will not be easy. The main sticking points will be the new entity's ownership, the location of its headquarters and the perimeter of its activity. Neither side wants to give up control. Thanks to Mr Sarkozy's repeated meddling in business to promote French interests, Germans are under the impression that a fair partnership with the French is not possible, says Jurgen Rohwedder, a spokesman for HDW.

Winning over organised labour will be tricky too. The European Metalworkers' Federation (EMF), which also represents shipyard workers, is already on the case. Though the union is in theory in favour of the creation of a naval EADS, it is determined to “control” labour relations. “We do not want to become involved in a battle of the jungle,” says Reinhard Kuhlmann, EMF's general secretary in Brussels.

Not surprisingly, many in the industry are sceptical about the likelihood of a pan-European naval group being established in the near future. Italy's Fincantieri and Finmeccanica, who together own Orizzonte Sistemi Navali, a naval-systems company, are watching the Franco-German tug-of-war from the sidelines. Meanwhile Spain's Izar is focused on its own internal problems. SEPI, Izar's state holding company, recently had to postpone plans to split the loss-making Izar group's four military and six civilian shipyards into separate companies because of fierce resistance to the job cuts involved.

Jean-Marie Poimboeuf, boss of DCN, thinks it will take from two to five years to bring together French, German, Italian and Spanish shipyards. And he is the most optimistic of Europe's shipyard bosses. But at least he can count on the French government's help, and on support, albeit reluctant, from the Germans.

France is keen to consolidate Europe's naval shipyards

• Primary Source